The lower house of India’s parliament, the Lok Sabha, today voted to allow foreign supermarkets to conduct business in India. The Congress Party backed government managed to push the measure through, after to minority parties abstained from voting. India badly needs Foreign Direct Investment (FDI) as its once booming economy has slowed to around 5.5% percent growth in GDP and is suffering from high inflation.
The move to open the retail sector to foreign investors was first approved in September, and did not need parliamentary approval. However in the face of opposition protests, Indian Prime Minister Manmohan Singh decided to put the measure to vote in both houses of parliament. The vote passed with 253 members for and 218 against while 74 abstained. The measure has been largely contended because many believe that it will put many small stores out of business. However, the passage of the measure in the lower house raises hopes that it can also be passed in the upper house, where it faces a tougher challenge.
Allowing foreign retailers would enable the likes of Wal-Mart, Tesco, and Carrefour to enter the market. India’s retail sector is expected to grow to $725 billion by 2017. The entry of supermarkets would greatly change India’s retail sector, which has traditionally been dominated by small owner manned shops.
The government and many economists applauded the vote, believing that investments made by foreign retailers would bring much needed capital into the economy. Under heavy pressure due to high inflation, the rupee has fallen 18% against the dollar. Foreign retailers could also help improve India’s supply chain, where many agricultural products spoil before they can reach the market. India’s SENSEX stock index increased by 0.2% to 19391.86, a 19-month high, riding investor confidence that the measure will pass through the upper house of parliament as well.
-Ashish Sathe
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